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Underwater Homeowners Can See Sunlight in 2014

NEW YORK (TheStreet) -- In the first 10 days of 2014, we've looked at the real estate market here and here. But let's put the capper on the jug with one last piece of good news heading into the year.

The trend is this: More and more Americans are seeing the value of their homes rise, which further stabilizes the housing market and gives Americans more confidence in their personal financial situations.

The supporting data come from RealtyTrac. It reports that only 9.3 million U.S. homes were "deeply underwater" at the end of 2013, down from 10.7 million in September. In percentage terms, only 19% of all U.S. homes were underwater in December, compared with 23% last September. (RealtyTrac defines "deeply underwater" as properties with loan to value ratios of 125% or above, meaning the homeowner owed at least 25% more than the estimated market value of the property.)

Those numbers were also way down from the underwater peak of 12.8 million homes in May 2012. That suggests the housing market is on an upward swing heading into 2014, and significantly so.

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"During the housing downturn we saw a downward spiral of falling home prices resulting in rising negative equity, which in turn put millions of homeowners at higher risk for foreclosure when they encountered a trigger event such as job loss," says Daren Blomquist, vice president at RealtyTrac. "Now we are seeing the reverse trend: rising home prices resulting in falling negative equity, which in turn is giving millions of homeowners a lifeline to avoid foreclosure when they encounter a trigger event."

That scenario should help the real estate sector gain more momentum this year, as RealtyTrac points out that fewer underwater mortgages translates into a "shot in the arm" for the housing market in 2014.

Still, with more than 9 million homeowners struggling with underwater properties, the housing sector isn't out of the woods yet.

"There are still millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity," Blomquist says. "The longer these homeowners remain in a negative equity position without relief in the form of a principal loan balance reduction, the more likely that foreclosure will become the path of least resistance for them."

RealtyTrac says Nevada, Florida and Illinois hold the most properties underwater, while Hawaii, New York, California and Montana lead the list of states where homeowners are emerging fastest.

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